PRINCETON, N.J.--(BUSINESS WIRE)--Heartland Payment Systems (NYSE:HPY),
yesterday filed a federal lawsuit against Mercury Payment Systems,
charging them with false advertising, unfair competition, intentional
interference with contractual relations, and intentional interference
with prospective economic advantage. The suit, filed in United States
District Court in the Northern District of California, San Francisco
Division, alleges that Mercury is illegally competing against Heartland
with deceptive trade practices. Heartland contends that Mercury is
effectively misleading merchant customers by deceptively hiding its
excess profits in the interchange fees charged by credit card networks
and their issuing banks, in violation of the Lanham Act, 15 U.S.C. §
1125(a)(1)(B), and related laws of the State of California.

The suit seeks to stop Mercury’s routine deceptive pricing practices to
secure new retail customers and maintain their existing merchants. The
suit also seeks to recover full value for each merchant and prospect
Mercury has wrongfully taken from Heartland by deceptively falsifying
pass-through interchange costs and other illegal methods.

“Heartland has consistently advocated for fair, transparent and ethical
credit, debit and prepaid card processing and billing procedures for
small and mid-size businesses,” said Robert O. Carr, chairman and CEO of
Heartland. “The deceptive pricing practice of falsely inflating
pass-through interchange fees not only constitutes unfair and illegal
competition, it also costs even the smallest of merchants hundreds, or
sometimes even thousands of their hard-earned dollars each year without
their awareness. Industry-wide, the cost of deceptive interchange
practices runs into tens of millions of dollars, and has caused great
harm to the reputation of the entire electronic payments industry.”

In the complaint, Heartland explains that the fees charged by credit and
debit card issuers – the issuing banks plus card brands such as Visa and
MasterCard – are collectively known as network, or interchange, fees.
Interchange fees are set by the card brands, and are typically adjusted
twice a year.

Electronic payment service companies, such as Heartland and Mercury,
provide the link between businesses and the card-issuing banks, enabling
rapid approval or rejection of the payment after a card is swiped and
subsequent funds settlement. In 2006, Heartland introduced “interchange
plus” pricing statements for merchant customers, indicating all fees
separately on a line-by-line basis. This transparent system was so
popular with businesses that most of Heartland’s competitors soon
followed suit for many of their small and mid-sized merchants. Standard
interchange plus merchant contracts for electronic payment services
typically require the merchant to pay the bank/card brand interchange
fees at cost, plus the fees charged by the processor.

Today, Mercury and other payment companies are getting around
interchange plus pricing transparency by illegally building their markup
into what they purport to be interchange fees. In the complaint,
Heartland states that it has reviewed hundreds of monthly statements
from Mercury for different merchants throughout the United States, which
indicate that Mercury repeatedly and regularly engages in a practice of
charging its customers inflated interchange fees without disclosure. For
example, instead of charging merchants Visa’s acquirer processor (APF)
and MasterCard’s access and brand usage (NABU) fees – both less than two
(2) cents per transaction – Mercury sometimes charges customers up to
nearly six (6) cents per transaction without informing them of the
markup.

The complaint cites an example of Mercury employing deceptive
pass-through interchange tactics to take business from Heartland. The
customer, a restaurant chain, compared pricing from various payment
processing companies, including Heartland and Mercury. Heartland
indicated it would charge interchange fees at cost, plus seven (7) cents
per transaction plus 0.02% of the dollar value of transactions and a
$7.50 monthly service fee – all competitive or standard industry rates.
Mercury’s bid indicated the same except for a 6.5 cents per transaction
fee, half a cent below Heartland’s bid. As a result, 50 of the chain’s
57 outlets switched from Heartland to Mercury for payment processing.
Review of a 2013 merchant invoice from Mercury clearly demonstrates that
Mercury was charging a falsely inflated interchange fee of four (4)
cents per transaction, making their effective per-transaction fee 10.5
cents instead of their contractually agreed rate of 6.5 cents.

The complaint also alleges that Mercury imposes significant costs and
barriers for changing providers, falsely informs merchants that they are
the only processor that supports their point-of-sale card swiping
equipment, and falsely represents their company in commercial
advertising and promotions as guaranteeing the best rate, among other
charges.

“Aside from putting a stop to Mercury’s deceptive, illegal practices,
our ultimate objective with this lawsuit is to help ensure a level
competitive playing field in the electronic payment processing industry
to provide fair, honest services to merchants, regardless of their size
or financial sophistication,” said Carr. “We believe that when all the
facts concerning Mercury’s misleading, unlawful practices come to light
in open court, we will start to put an end to falsely inflated
interchange billing and other deceptive practices that harm our
customers as well as the payment processing industry.”

For more information about the lawsuit and the issue of deceptive,
illegal practices in the electronic payments industry, please visit www.merchantservicesdefense.com.

This press release contains statements of a forward-looking nature
which represent our management’s beliefs and assumptions concerning
future events.Forward-looking statements involve risks,
uncertainties and assumptions and are based on information currently
available to us. Actual results may differ materially from those
expressed in the forward-looking statements due to many factors,
including risks and additional factors that are described in the
Company’s Securities and Exchange Commission filings, including but not
limited to the Company’s annual report on Form 10-K for the year ended
December 31, 2012. We undertake no obligation to update any
forward-looking statements to reflect events or circumstances that may
arise after the date of this release.